(1) Hunter v McCarrick and (2) Enterprise Management Services Limited v Connect-Up Limited & Others (service provision change and TUPE)

23 Jan 2012

Hunter v McCarrick

Enterprise Management Services Limited v Connect-Up Limited & Others

The EAT has handed down two important judgments dealing with practical issues under TUPE.

Hunter v McCarrick concerned a claim of unfair dismissal by Mr McCarrick, the Managing Director of WGL.  In February 2009, property management services, previously undertaken by WGL were transferred to WCP, which then managed the property portfolio for WGL.  On the same date, a winding-up petition was presented against WGL.  This raised questions about the validity of the transfer but for the purposes of TUPE, the essentials were that:

– Mr McCarrick transferred to WCP in February 2009;

– There was a second transfer of the management services in August 2009 from WCP to agents retained by WGL's receiver; and

– There were separate clients behind the managing agents; WGL then its receiver. 

Mr McCarrick was dismissed and one of the questions for the Employment Tribunal was whether TUPE preserved his employment through the two transfers of the management service?  The Tribunal said yes; it adopted a purposive approach, finding that there were two service provision changes, notwithstanding the difference in the identity of the client for whom the services were provided.

The Employment Appeal Tribunal (EAT) disagreed and reversed the decision.  It focussed on TUPE Regulation 3(1)(b)(ii) which says that a service provision change is a situation in which "Activities cease to be carried out by a contractor on a client's behalf…and are carried out instead by another person…on the client's behalf "

There is no need to go to a purposive construction of TUPE because the Regulation has a straightforward literal meaning; "the client" must be the same person as "a client".  The EAT went on to say that there is no authority for arguing that "a" client and "the" client could refer to different entities.

This decision is not just for TUPE aficionados. We identified and argued the same point in August when we were resisting a group claim under TUPE against one of our clients. The EAT's decision had not of course been made at that time. While the judge in our case expressed interest in the point he was not required to decide it because the claims against our client collapsed for other reasons. 

The judgement gives timely reminders not to read too much into the regulations when the text has a clear ordinary meaning and to read that text carefully. The decision will have growing importance as we see more second and third generation outsourcing by public bodies, especially by the increasing number of local authorities which have established arms length procurement operations to manage their services for them. 

Enterprise Management Services Limited v Connect-Up Limited & Others concerned a contract for the provision of IT services to schools controlled by Leeds City Council.  Enterprise provided services to all of the Council schools but when the contract was re-tendered at the beginning of 2009, the proportion of schools taking the service had fallen to 80%.  The new contract also excluded services relating to the curriculum.  This represented approximately 15% of the work previously undertaken by Enterprise. 

The new contract was awarded to Connect-Up.  On 31 March, Enterprise dismissed the employees who had previously worked on the contract and Connect-Up took over on 1 April.  The reason for dismissals was not clear but the result was a classic standoff between Enterprise and Connect-Up with the unfortunate employees caught in the crossfire.

Shortly after 1 April several other service providers came on the scene and in what seems to have become a commercial free-for-all, Connect-Up quickly lost about 40% of the schools previously serviced by Enterprise. 

The Employment Tribunal found that the former employees of Enterprise did not transfer to Connect-Up because TUPE was not engaged.  There were significant differences between the activities carried out by Connect-Up, compared to those carried out by Enterprise.   Enterprise appealed. 

In dismissing the appeal, the EAT said that when considering service provision changes and the activities which are subject to the change, the first task of the Tribunal is to identify the relevant activities.  Its second task is to decide if the activities carried out by the incoming contractor are essentially the same as those carried out by the original contractor, minor differences excepted.

The EAT has said in other judgements that activities need not be identical before and after a service provision change.  The test is whether the activities are essentially the same.

We see the post-transfer fragmentation of services in this case as a red herring in the context of the activities themselves and it is slightly surprising that the exclusion of 15% of the old service was enough to avoid TUPE.  Nevertheless, the EAT has signalled that there is more flexibility then previously thought which is good news for transferees – with the caveats that the circumstances of the case were slightly unusual and there is no substitute for a thorough due diligence process before entering into this sort of contract.